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Black Sludge and Blackouts

Corporate Research E-Letter No. 14, July 2001

Black Sludge and Blackouts: The Coal Industry Takes Center Stage

by Philip Mattera

“This is an important moment for us,” the president of a major trade association told a reporter for the New York Times recently. “We have to seize the opportunity and prove to the world that we are a new industry--hopeful, open, technologically sophisticated and environmentally sensitive.” Amazingly enough, those words were uttered by the president of the National Mining Association, the mouthpiece for the coal industry.

Coal is not generally associated with phrases such as technological sophistication and environmental sensitivity. In fact, for many people coal is the epitome of a backward and socially irresponsible business. This is the industry, after all, that brought about disasters such as the 1972 Buffalo Creek flood that killed 125 people in West Virginia. It is the industry that has been a major contributor to global warming and acid rain. It is the industry that fought the collective bargaining rights of its workers, killed thousands of them via mine accidents and black lung disease--and then made most of them redundant by switching to environmentally reckless strip mining techniques. It is an industry that seems more suited to the 19th than the 21st Century.

Nonetheless, the business once known as King Coal is making a dramatic comeback, both in economic and political terms. Overall coal consumption has been rising in recent years, and last year consumption actually outstripped production by about six million tons, which brought industry stockpiles to an all-time low. The rise in demand has helped to push up spot market prices for coal, especially east of the Mississippi. This past winter, the price of natural gas rose at a much faster rate, thus making coal seem a lot more appealing to electric utilities. Power producers, which already use coal to generate more than 50 percent of the nation’s electricity, are looking to coal to help avoid the kinds of electricity shortages that plagued California earlier this year.

Political Investments Pay Off

This year coal is also enjoying the payoff from its substantial investment in last year’s election. The industry contributed generously to the Republican Party, led by a presidential candidate from the Texas, where more coal is consumed than in any other state, and a vice presidential candidate from Wyoming, which is by far the leading state in terms of coal production.

The Bush-Cheney Administration has been a dream come true for coal producers and users. After Irl Engelhardt, chairman of the Peabody Group, the country’s largest coal company, served as an energy adviser to the Bush-Cheney transition team, Bush abandoned his campaign pledge to begin regulating carbon dioxide emissions from power plants and turned his back on the Kyoto treaty on global warming. The Cheney energy plan affirmed coal’s central role, and the administration is working with House Republicans to promote legislation that would provide billion of dollars in tax credits to promote so-called clean-coal technology. Suddenly, utilities are beginning to consider building coal-fired plants that were unthinkable a few years ago.

Emboldened by its enhanced stature, the industry has formed a new lobbying arm called Americans for Balanced Energy Choices. Bankrolled by coal producers as well as railroads that haul coal and electric utilities that burn it, the group is reportedly prepared to spend $5 million this year to help spread the clean-coal gospel. Coal, by the way, accounts for more than a third of the railroads’ revenue-ton-mileage.

Environmentalists remain skeptical that coal can be made benign. "The coal industry is making false claims that new technologies can clean up coal,” Friends of the Earth President Brent Blackwelder stated recently. “But the truth is that it's a dirty fuel source and we should be shifting towards cleaner energy."

There is good reason to be concerned that the clean-coal drive can actually do more harm than good to the environment. Some of the worst abuses seen in the industry today are the unintended consequences of 1990 amendments to the Clean Air Act mandating the use of lower-sulfur coal by utilities.

Strip Mining on Steroids

In its quest to meet the demand for low-sulfur coal the industry has accelerated its use of an aggressive extraction technique known as mountainTop removal. Sometimes described as “strip mining on steroids,” this process involves slicing off the Tops of mountains to get at the coal underneath and dumping the millions of tons of stripped-away earth into “valley fills” that, critics charge, disrupt water tables and contribute to flooding. While opponents are appalled at the way that mountainTop removal is altering the Topography of areas such as eastern Kentucky and southern West Virginia, industry representatives brag that the newly leveled land is just right for shopping centers and golf courses. In April a federal appeals court dismissed a lower court’s finding, in response to a suit brought by the West Virginia Highlands Conservancy, that mountainTop removal was illegal.

MountainTop removal is an incredibly expensive process that only the largest coal companies can afford. It is thus no surprise that the shift to mega-scale mining has been accompanied by a concentration of ownership in the industry. Last year the ten largest coal producers accounted for 66 percent of the total U.S. output of just over 1 billion short tons.

The current shape of the industry is the result of widespread restructuring over the past decade. Previously, many of the largest coal producers were subsidiaries of large petroleum companies that were trying to cover all the energy bases. Big oil lost interest in coal and sold off much of its holdings to companies more focused on mining. What is now the number two producer, Arch Coal, was formed by the merger of Arch Mineral and the coal business of Ashland Oil as well as the subsequent acquisition of the coal operations of Atlantic Richfield. Other parent companies took similar steps: construction giant Fluor spun off its A.T. Massey Coal subsidiary into Massey Energy. Foreign mining companies have also expanded their position. Rio Tinto PLC, which bought Kennecott in 1989, has acquired several other U.S. producers. Germany’s RAG bought Cyprus Amax Coal in 1999.

Even with the help of the Bush Administration, the coal industry has an uphill battle in trying to whitewash its image. After all, it was less than a year ago that a leak in a massive waste lagoon sent 250 million gallons of coal sludge across a swath of Martin County, Kentucky, creating what an EPA official called the worst man-made ecological disaster the region had ever seen. The future of the industry may very well turn on whether the public is moved more by the black sludge of Martin County or the blackouts of California.

Leading U.S. Coal Producers in 2000 (production in millions of short tons)